Economists: Lagging tax revenue will make balanced budget hard to achieve

Raul Eamets (Postimees/Scanpix)
7/18/2016 8:28 AM
Category: News

Chairman of Estonia’s independent Fiscal Council, economist Raul Eamets, said that though so far Estonia had been exemplary meeting structural balance requirements, the coming years would bring smaller tax revenues, and that this would affect the state budget as well.

Structural balance means considering a country’s actual fiscal position in the longer term when putting together its budget. Budget spending in the short term connected to economic development isn’t included in this calculation, which means that the conditions are quite strict.

So far, Estonia had gone beyond all expectations keeping its budget balanced, Eamets said to ERR’s online news.

Member of the Riigikogu’s Finance Committee and former Minister of Finance Aivar Sõerd (Reform) had said on Friday that he doubted that the government would manage to make structural balance a priority putting together the next budget. According to Sõerd, the government has already given up the principle of a surplus, as well as the expectation to bring Estonia’s reserves back to pre-crisis levels.

Eamets remarked that it wouldn’t pay to be too critical of these decisions now. “In retrospect, I certainly don’t agree with them, but nobody knows what the future will bring,” Eamets said.

Mari Pärnamäe, an economist with the Bank of Estonia, also said that achieving a balanced budget would likely get harder and harder in the future. Estonia’s fiscal system relied on taxing labor expenses as well as consumption, and the development of both was slowing, she pointed out.

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Editor: Dario Cavegn

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